Corning, Inc. (GLW) is at its core a glass company (don’t stop reading! I promise it gets better) which in the age of Amazon (NASDAQ:AMZN), Facebook (NASDAQ:FB), Nvidia (NASDAQ:NVDA) and Tesla (NASDAQ:TSLA) always illicits blank stares and muffled laughter at cocktail parties when discussing top stock picks…
I need some new friends.
Corning is not your average boring glass company; it is a tech company draped in jeans and a tee shirt. And it may be one of the best macro trend stocks currently available in the market.
In this article I will discuss:
1) A brief history lesson of the company.
2) Take a look at current valuation, potential dividend growth and its balance sheet.
3) A look into the potential future and explore the macro trends, I believe will power this stock for a minimum of 15 to 20 years into the future.
Corning Glass Works was founded in 1851 hence the ticker symbol GLW. The firm also established one of the first industrial research labs in the USA in 1908. So, R&D is firmly implanted in the company DNA.
You may be most familiar with its historical products in the consumer sector, IE Corningware, pyrex, etc., sorry to disappoint you but this consumer division was divested in 1998. Corning has a long and interesting history slinging silica, whether it be supplying the glass for Thomas Edison’s first light bulb, glass panels for the first televisions, even supplying the glass windshields for the space shuttles.
Corning seems to have had a hand in quite a few turning points and major leaps in mankind’s industrial revolution! And through it all Corning always has been about 10 years ahead of its time… Leading to a hit and miss history, IE its first foray into lighter and stronger automotive windshields “Chemcor” in 1962 (this is now gorilla glass!), its first fiber optic venture in the ’70s, or its second in the late ’90s, among others.
Today, Corning employs 34,000 people and operates in the following divisions:
Display Technologies – Mostly television screens, mainly LCD.
Optical Communications – Fiber optics, photonics, lasers, etc.
Environmental Technologies – Filters for the automotive market.
Specialty Materials – Gorilla glass for phones, tablets, wearables and a joint venture for automobiles.
Life Sciences – Valor glass for pharmaceutical packaging.
Corning is looking to spend at least 10% of its revenue on R&D in some form, and with revenues reaching over $10 billion in 2017, that is no small sum.
The takeaway from this is that the company is quite serious about investing in glass.
Source: Know Your Meme
If you get the above reference, 2 points for you!
The Financial Stuff
Corning’s financial house in recent times has been kept in good order, with lessons apparently learned from the 1999-2000 time frame when the company nearly was bankrupted by an ill-timed foray into fiber optics a decade and a half too soon.
The company has $4.63 billion in total debt, nearly covered by its $3.87 billion current cash position. The company recently has announced plans to loosen its belt a bit to reward shareholders, putting to work the company’s solid balance sheet.
Source: Corning | Materials Science Technology and Innovation
And boy are they ever! $12.5 billion to shareholders for a $28 billion company is a massive program. Add to the fact that it is projected to keep the target Debt/EBITDA ratio at around 2, and it appears to be a good deal all around and indicative of a management team very confident in future prospects.
The company has repurchased nearly 30% of the float in roughly a three-year time frame so far.
Dividend growth at the company looks to just be warming up as well, as it has set out a goal to raise the dividend low double digits annually through 2019. The company already sports a roughly a 2% yield after raising it 15% in 2017.
Now, I’m no Albert Einstein, but it appears that if you assume a conservative 10-12% dividend growth rate through 2019, we are close to a 3% yield here, very respectable for a growing tech name.
My guess is that it we are looking at double-digit dividend growth for a minimum of 5-7 more years based on Corning’s history of conservative guidance, and with the balance sheet to clearly support it.
The current PE ratio is not 13!
Contrary to the data that you see on most quote screens, the company’s PE ratio when adjusting for one-time items stands around 18, not 13…
I cannot tell you how much it bugs me to see people look at the anticipated forward PE of 16.5 and say, well, it looks like the company is not growing. IT IS! Trust me, it is… The PE is out of whack due to the sale of the Dow Corning joint venture; this misunderstanding has caused many people to get excited at how cheap the company is only to later exclaim that they passed on the stock because it is not growing.
Corning, while certainly not the cheapest stock in the world, it still represents a modestly good deal here on a relative basis and I would love to hear anyone’s justification to claim it is overvalued in the current market.
The company’s main earner (and one that analysts tend to over focus on IMO) is the LCD TV screen market, where it still gets the majority of its profits. But other segments of the company are looking to change that.
Analysts on average are giving the company an estimated EPS growth rate of around 8% in the next 2-5 years, placing its PEGY ratio at a respectable (by modern standards) 1.8.
A Future Made Of Glass
Now we get to the fun part of the article for me. I do not judge you if the company’s history or financial data isn’t your bag, but this is the part of the article I am looking forward too.
When you think about the future, what do you envision?
Source: Meme Generator | Create Your Own Meme
Cake on demand?! Hopefully! But for me, it is in essence the continued or accelerated evolution away from the big, cast iron and concrete model of the 1900s, where every problem was solved by “give it more power!” To a lighter, stronger and more efficient steel, aluminum and glass future.
This transformation process is already underway! You can see it in everything you buy, from a TV, to a car, to a phone, tablet, smart watch or computer. Or even the buildings you live, or work in. Every window and screen is getting bigger while also becoming thinner, lighter and brighter.
And also more efficient! In order for companies to cut costs whilst improving function, the lowest hanging fruit for just about everything is to lower their weight and use less energy, whether in production or during operation.
This trend in my opinion will only speed up. It has too. Autonomous vehicles are on the horizon, and while uptake and infrastructure for this revolution will take decades to build. Regular old gas powered cars will continue to cut weight and add MPGs along with other creature comforts and entertainment as well.
This trend of both necessity and economics bodes very well for Corning! As it looks to already have a virtual monopoly on the “entertainment screen” market, with phones, TVs, tablets and smart watches already major contributors to the company’s bottom line.
Source: Meme Generator | Create Your Own Meme
I would now like to go further into some opportunities that I believe will continue to drive Corning’s growth and perhaps accelerate it over the next 5 to 20 years.
Fiber and Optical
This is a segment that I will discuss that holds the more immediate, near-term payoff for the company and one that is focused on a lot currently by traders and medium-term investors.
The fiber revolution Corning promised us in 1999 looks now to be firmly upon us. With the coming 5G revolution telcos have been eagerly anticipating and continued data thermonuclear explosion around the world, fiber networks and back haul are now a guaranteed need to upgrade or expand for telecom and data centers, both in the USA and internationally.
Recently, Corning announced the purchase of 3M’s (MMM) fiber business and in 2016 purchased Alliance Fiber, strengthening its already impressive offerings; now corning can offer a complete solution for telcos evidenced by the recent $1.05 billion fiber deal with Verizon (VZ).
With the tax reform bills ink drying on Trump’s tiny desk as we speak, telecom companies are a major beneficiary of this legislation, and capex for these companies is set to expand as AT&T (T) has already announced a $1 billion expansion of its capex plans for 2018 and I imagine Verizon and others are not far behind.
With fiber a key piece of the puzzle in new 5G networks, it would not be wild speculation that fiber will likely receive a large chunk of this expanded capex. Making Corning a potential key winner.
Corning also has a renowned, advanced optics division that serves the aerospace, defense, medical and semiconductor sectors. Corning has, from what I can tell, been working (rather secretly) on a super advanced form of green laser. I am not entirely sure of the purpose or market applications for Corning’s green laser development or the apparent secretive nature of the research, so in place of actual information on the project (if you know, please comment) I leave you the below meme.
The fiber and optical markets are currently contributing significantly to Corning’s bottom line; however, this trend is here to stay and perhaps in its early innings. The company looks to have solidified itself as a market leader in this segment.
Barring some future advancement rendering fiber obsolete, I think it is safe to assume this market’s overall healthy growth for at least another decade.
The days of soda lime glass for vehicles will end… it’s not a matter of if but of when. And Corning I believe has what it takes to be the supplier of the future!
Corning’s Gorilla Glass currently offers a 30% reduction in weight and is 25% thinner than soda lime. On top of this, it is also stronger and more shatter resistant than the soda lime used in car windshields and windows today. It has announced in 2016 a joint venture with windshield leader Saint-Gobain (OTCPK:CODYY) to begin to monetize this effort.
So this would seem to bode well for modern day gas powered vehicles, but even better for future autonomous cars should they ever hit the streets.
Vehicles of the future will likely not only have Corning windshields and windows but also a Corning heads up display, entertainment center, sunroof, etc. The company already has relationships with auto industry leaders Ford (F), General Motors (GM) and suppliers. The company has also done quite a bit of concept work in the field, and I encourage you to look for yourself Corning | Materials Science Technology and Innovation.
The key qualities to a leader in this market will likely be quality, volume, scale and patents… something Corning has in spades.
Autonomous vehicles will be home to massive amounts of screens, due to the added need to entertain its passengers that were once distracted by (hopefully) paying attention to the road. Futuristic passengers will likely not be interested in sitting quietly and looking out the window or listening to the radio… And I sincerely doubt magazines or, god forbid, actual conversations among passengers will suddenly come back into style. They likely will become mobile work center or mini theaters for their passengers.
The autonomous car will be a massive opportunity for Corning and one that will require flawless execution to pull off, however, if achieved, has massive game changing potential for the company.
I classify autos as a medium-term opportunity, 3-10 years from meaningful impact with the contribution from current traditional vehicles likely to contribute perhaps a decade before autonomous. However this gives the sector a long runway for the company and a key market to dominate for long-term success.
Buildings of Tomorrow
Corning has long sought to enter the architectural glass market, which as you can imagine would be a huge market if penetrated successfully. Below I have posted a description of Corning’s current offerings in the architectural market from its website:
“As an architectural glass, Corning® Willow® Glass, for example, can curve around pillars or provide a glistening laminate for ordinary building materials. Corning® Fibrance® Light-Diffusing Fiber can outline a runner’s headphones with a colorful strand of light, or line a hospital room floor with a gentle glow to guide you along. Corning® Gorilla® Glass, already a standard in the consumer electronics industry, can line the walls of an elevator cab or create a seamless “smart wall” to interact with guests in a lobby setting or department store.”
Now, when you watch futuristic movies, have you noticed basically all of the floors of a space ship or large buildings have a “smart floor” guiding you by light or by color to your destination? Also that stores and hotels of the future all seem to have smart walls as portals of information or as virtual customer service agents.
Movies tend to predict the future of technology with sometimes prophetic accuracy. In my opinion that is because the human mind works much better with what it is familiar with and we then conceive of a logical but familiar outcome or product in which to adapt future technologies for ease of adoption.
For example, if Apple (NASDAQ:AAPL) suddenly made a breakthrough that meant a phone is more efficient and functional in every way, but it had to now for some reason look like a garden gnome, I would venture those plans would be locked securely away in Cupertino for a rainy day.
However it may well make economic sense for the vision of Corning in this area to happen, as automation looks to be coming soon to a retail store near you via Amazon and Wal-Mart (NYSE:WMT), among others. I can only guess that future hotels, restaurants and other industries may soon be putting you face to face with a screen where a person once stood.
That screen you may be staring at while ordering your lunch, or the smart floor that guides you step for step to your hotel room, or, as will be more likely in my case, guide me to the liquor department in my local grocery store has a good chance to have been produced in a Corning lab.
My main question is do you think the buildings of the future will look like this?
Or more like this?
I will take the latter every single time… And so would Corning!
This industry I classify as long term, 15-20 years from meaningful contributions; however, if the future turns out to be even a muddied version of what I have outlined, Corning is set to outperform for decades to come.
I view Corning as a core holding, one that today you could not pay me enough to sell. In my view, it seems to has its hand in the majority of what I can see are super trends in the future economy (I did not even mention alternative energy via Hemlock Semi).
As you can tell, this was not a near-term focused article, and if that is what you were looking for, then I apologize; I am simply not interested in the near-term swings of this particular stock based on LCD pricing.
I am attempting to lay out a realistic vision of the future and how Corning fits in, and in my view, the company seems to have an unparalleled runway of growth.
Of course, it is not competitor free, far from it, but the scale and vision of this company have tested the sands of time, and I am hard pressed to find a competitor as uniquely positioned as Corning to capitalize on the mega trends of the future.
Corning is my largest single equity position, currently occupying 4.6% of my equity portfolio, and if my thesis remains intact, I plan to hold this company for decades.
Disclosure: I am/we are long GLW, T, VZ.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.